Healthcare Professionals: Incorporation & Deductions + Medical Practice Tax Planning Canada: How Doctors, Dentists, Nurses, and Therapists Reduce Taxes and Protect Income — A Montreal CPA Firm Near You Explains

Introduction
Understanding incorporation and deductions for healthcare professionals is essential for doctors, dentists, pharmacists, physiotherapists, chiropractors, optometrists, psychologists, therapists, nurses, and all regulated medical practitioners in Canada. Healthcare professionals pay some of the highest taxes in the country because their income is often fully taxable at top marginal rates. Incorporation allows medical practitioners to reduce taxes, defer taxes, protect assets, split income under certain exemptions, and deduct legitimate business expenses. With Revenu Québec and CRA closely monitoring medical entities for compliance, having a clear tax strategy is essential.

Why Healthcare Professionals Should Consider Incorporation
Incorporation allows healthcare professionals to pay corporate tax rates instead of high personal tax rates. Corporate tax in Quebec is far lower than the top personal tax bracket. Professionals can leave income inside the corporation and invest it at lower tax rates. Incorporation also provides limited liability (depending on profession), supports long-term tax deferral, improves retirement planning, and allows access to income-splitting techniques under specific rules. Incorporation is one of the strongest wealth-building tools available to medical practitioners.

Tax Deferral Advantage for Healthcare Corporations
When healthcare professionals earn income personally, every dollar is taxed at personal graduated rates that can exceed 50 percent. In contrast, income retained in a professional corporation is taxed at a much lower corporate rate. This tax “deferral” allows more money to remain invested inside the corporation. Over years of practice, this difference compounds into significant long-term wealth growth. Many physicians and dentists accumulate substantial investment portfolios within their corporations using this advantage.

Salary vs Dividends for Healthcare Professionals
Once incorporated, healthcare professionals may pay themselves through salary, dividends, or a combination of both. Salary creates RRSP room and counts toward CPP/QPP. Dividends offer flexibility but do not generate RRSP room. A mixed remuneration strategy often provides the best outcome. Salary ensures personal retirement planning, while dividends reduce payroll costs and optimize tax brackets. Proper planning ensures maximum tax efficiency.

Income Splitting Rules for Family Members
TOSI (Tax on Split Income) restricts income splitting for many professional corporations. However, exemptions exist for:
spouses who work at least 20 hours per week in the business
spouses who are over age 65 (age-exemption rule)
capital gains on qualified shares (in specific structures)
family members who contributed capital at reasonable levels
Healthcare professionals must apply these rules carefully. Improper dividend splitting triggers top-rate taxation.

Eligible Deductions for Healthcare Professionals
Healthcare professionals can deduct a wide range of business expenses, including:
professional association fees
continuing education and licensing costs
malpractice insurance
medical equipment and instruments
office rent and clinic expenses
staff salaries and subcontractors
EMR software, subscriptions, and telehealth tools
medical supplies and consumables
vehicular mileage for home visits
These deductions reduce corporate or self-employed income and can lower taxable income significantly.

Home Office Deductions for Part-Time Practitioners
Professionals who conduct administrative work from home or operate hybrid practices may deduct home office expenses when certain conditions are met. Expenses may include internet, utilities, a portion of rent or mortgage interest, and office supplies. CRA requires documentation of workspace use and business relevance.

Capital Cost Allowance for Medical Equipment
Medical equipment such as X-ray machines, dental chairs, ultrasound units, physiotherapy equipment, optometry machines, and diagnostic devices qualify for capital cost allowance. Some equipment may qualify for immediate expensing under new rules, while others fall under various CCA classes. Proper classification maximizes allowable deductions.

Vehicle and Travel Deductions
Healthcare professionals who travel for home visits, conferences, hospital rounds, or multi-clinic work can deduct mileage, fuel, repairs, insurance, and depreciation. CRA requires a mileage log documenting business vs personal use. Travel for conferences, certifications, training, and patient-care improvement may also be deductible.

Professional Liability Insurance and Licensing Fees
Mandatory malpractice insurance, CMPA dues, licensing fees, and regulatory fees are fully deductible. These recurring costs represent essential operating expenses and reduce taxable income.

Retirement Planning Through Professional Corporations
Professional corporations allow healthcare practitioners to save for retirement through:
RRSPs
IPPs (Individual Pension Plans)
corporate investment portfolios
tax-sheltered life insurance strategies
IPPs are particularly beneficial for older, high-income physicians and dentists wanting guaranteed retirement contributions with creditor protection and actuarial support.

Health Spending Accounts (HSAs)
HSAs allow healthcare professionals to pay for personal and family medical expenses through the corporation tax-free. The corporation deducts the HSA payments, and the practitioner receives reimbursed coverage without taxable benefits. This is one of the most tax-efficient medical benefit structures for practitioners.

Real Estate Ownership Through the Corporation
Some healthcare professionals purchase clinic space through a holding company and rent it to their operating corporation. This structure creates asset protection, rental income separation, and tax planning opportunities. CRA requires arm’s-length rental arrangements and proper documentation.

GST/HST and QST for Medical Practices
Most medical services in Canada and Québec are exempt from GST/HST and QST. However, not all services qualify as exempt. Examples that may be taxable include cosmetic procedures, independent medical assessments, non-medically necessary treatments, certain therapy programs, and consulting services. Healthcare professionals must carefully classify taxable and exempt services to avoid CRA/QST penalties.

Audit Risks for Healthcare Professionals
Common CRA and ARQ audit triggers include:
high expenses vs reported revenue
vehicle deductions without logs
incorrect income-splitting practices
mixed personal and business transactions
unjustified medical equipment purchases
incorrect GST/QST treatment for non-exempt services
professional corporations face high audit scrutiny due to income, complexity, and cash flow.

Risk Management and Legal Protection
Incorporation offers certain levels of protection. While professional negligence is never shielded by a corporation, business-related liabilities, leases, equipment financing, and contractual obligations may receive corporate protection. Insurance and proper structure remain essential.

Mackisen Strategy
Mackisen CPA supports healthcare professionals with incorporation, tax planning, bookkeeping, payroll, GST/QST analysis, IPP and retirement structures, medical-equipment CCA planning, audit defense, and long-term wealth strategies. We help physicians, dentists, specialists, and clinic owners maximize income, reduce taxes, and build long-term financial security.

Real Client Experience
A Montréal dentist reduced tax significantly through incorporation and salary-dividend planning. A physiotherapist saved thousands using home office and equipment CCA deductions. A medical specialist received a QST audit over consulting services; Mackisen resolved the issue and corrected invoices. A psychologist expanded to a second clinic and used corporate structuring designed by our team to reduce tax and protect assets.

Common Questions
Do all healthcare professionals benefit from incorporation? Most high-income practitioners do, depending on cash flow.
Can spouses receive dividends? Yes if they meet TOSI exemptions.
Can medical equipment be written off? Yes through capital cost allowance.
Are all medical services GST/QST exempt? No, some are taxable.
Should I open a holding company? Often yes for asset protection and real estate.
Is an IPP better than an RRSP? For older high-income professionals, frequently yes.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps healthcare professionals reduce taxes, protect income, and build long-term wealth through precise incorporation strategies, advanced deductions, corporate planning, and full CRA/QST compliance. We support medical practitioners at every stage of their career with smart, proactive financial planning.